JP Morgan & Citigroup Report Increased Legal Costs in 3rd Quarter - Regulations Matter

Th

e ongoing currency rigging case that has impacted the world's most liquid asset class, FX, has put banking institutions affected by the case in a spot of bother as their legal costs have ramped-up.

As corporates release their third quarter earnings, data published by leading firms such as; Citigroup and JP Morgan shows that both are spending considerable amounts on covering legal costs. The figures come as industry practitioners expect a number of firms to face the music with record monetary fines being issued.

Two of the world's largest FX banking firms have reported their third quarter earnings, both Citigroup and JP Morgan saw a rise in the amount they spent on legal issues. A number of banks involved in the FX rates manipulation investigation are expecting harsh conclusions as investigations evolve.

In its third quarter filings, J.P. Morgan states that its legal expenses have increased from last quarter's figure by $400 million. At the same time, rival Citigroup, has also seen a sharp rise in the amount of funds spent on legal expenses, the firm said legal expenses had risen by 40% year-on-year crossing $950 million.

The FX rates manipulation case were brought to light after investigations into the fixing of Libor rates led to further probes by banks and authorities. The FX probes have added a new layer of concern for industry professionals who were trying to bed the debacles of the 2008 recession.

The latest fiasco has impacted the world's largest banking organizations as well as central banks, over 30 key members of banks trading teams have been placed on leave as the banks conduct internal investigations, with a number of individuals suspended for breaches. The UK’s central bank, the Bank of England had reported that a staff member was suspended in relation to the FX fixing case.

Although JP Morgan has seen an increase in legal expenditure, the bank reported net income for the third quarter of 2014 of $5.6 billion, compared with a net loss of $0.4 billion in the third quarter of 2013. Its earnings per share were $1.36, compared with $(0.17) in the third quarter of 2013. Revenue for the quarter was $25.2 billion, up 5% compared with the prior year.

Citigroup saw a 13% increase in revenue of $19.97 billion signifying $1.15 a share. The bank saw trading activity increase as well as a slowdown in credit losses.